News from the New York State and Local Retirement System

Tag Archives: Retirement Security Crisis

Many Americans are lacking access to employer-sponsored retirement plans.

America is facing a retirement security crisis. The shift away from defined benefit (DB) pensions in favor of defined contribution (DC) plans is considered a common cause. The number of workers with a DB plan decreased (PDF) from 67 percent to 43 percent between 1989 and 1998, while those with a DC plan rose from 33 to 57 percent during that same time. The lack of access to any sort of employer-sponsored retirement plan is another factor: 43.3 million American workers didn’t have access to an employer-sponsored retirement plan in 2013.

The unfortunate truth, though, is that many Americans just aren’t prepared to retire.

A State Solution to the Retirement Crisis?

A few weeks ago, we mentioned how AARP NY called for a state-sponsored retirement savings program to address this problem. According to AARP NY, Americans are 15 times less likely to open a retirement savings plan on their own compared to if their employer offered one. Even more startling, about 3.6 million New Yorkers working in the private sector don’t have access to any kind of employer-sponsored retirement plan.

Pensions: A Major Part of Retirement Security

Workers will need more than their Social Security and personal savings for a secure retirement. This is where more employer-sponsored retirement plans can help workers. About two thirds of working age Americans aren’t taking part in a retirement plan (PDF) . But even though DC plans are now more common than DB plans, that doesn’t mean they’re the best answer to providing steady retirement income. A DB plan provides a steady source of income for the pensioner’s lifetime. There’s no guarantee a DC plan will provide a retiree with enough or any income during retirement. If too many workers retire without an employer-sponsored plan, they could face levels of poverty in retirement.

According to the report, because of these low retirement plan enrollment numbers, 55% of U.S. households nearing retirement may have to rely on Social Security income exclusively for financial survival in retirement.

The Dwindling Number of Defined Benefit Plan Participants Fare Best

The report, entitled Are U.S. Workers Ready for Retirement? Trends in Plan Sponsorship, Participation and Preparedness, was released in April and co-authored by Theresa Ghilarducci, a nationally recognized expert in retirement security. It found that of working-age Americans with an employer-sponsored retirement plan available to them, only 16 percent had a defined benefit plan, while 63 percent had a defined contribution plan such as a 401(k).

In a comparison of net worth, the households who are enrolled in a defined benefit pension plan fare the best, with a median net worth of $116,973, compared to $107,250 for those in a defined contribution plan, and $4,450 for those without an employer-sponsored plan of any kind.

Regrettably, as bleak and discouraging as this picture is, things could still be worse.

Too Many Future Retirees Face the Possibility of Poverty

According to the report, 33 percent of current workers aged 55 to 64 are likely to be poor or near-poor in retirement based on their current levels of retirement savings and total assets. While a sizable share of the retiree population will be at risk of living in poverty in all states, workers in Massachusetts and Virginia are more likely to enjoy a secure retirement than their counterparts nationally, with only 22 percent of workers 55 to 64 likely to be at-risk for a poor standard of living in retirement.

It’s a much more troubling story here in New York where 32 percent of near-retirement workers may experience poverty or near-poverty in retirement based on their current savings levels.

The New York State Common Retirement Fund, now valued at $176.2 billion, is one of the best funded State retirement plans in the country. At the summit, Comptroller DiNapoli reiterated that well-funded and well-managed defined benefit plans like those of the New York State & Local Retirement System are affordable and sustainable for the long term and serve as an example of how a good pension plan can work, and not just for public employees. Americans nonetheless face what he calls a “staggering” crisis of retirement insecurity.

Retirement Statistics Tell The Story

Comptroller DiNapoli pointed out the following sobering statistics:

The number of private sector employees who have a defined benefit pension plan declined from 38 percent in 1980 to 14 percent in 2010;

Close to 50 percent of the 79 million baby boomers – about 34 million men and women – are at risk of not being able to maintain their living standards in retirement;

How to Address A Complex and Growing Problem?

According to the Comptroller, though recently proposed initiatives, such as Senator Tom Harkin’s Retirement Fund s Act and President Barack Obama’s MyRA, are encouraging, it’s unlikely that any comprehensive federal legislation is going to be passed anytime soon. Comptroller DiNapoli believes that any proposed solution to this problem, whether at the state or federal level, must include a vehicle that provides ease of enrollment, protects principal, has low cost fees and provides for some level of guaranteed income in retirement. “The one thing we can’t do,” he stressed, “is stand still.”